Rents in Prime London Locations Soar As Demand Outstrips Supply
What does the future hold for London’s most sought-after rental markets?
Prestigious postcodes in prime central London have always commanded a premium. But with demand currently outstripping supply, landlords with properties in the likes of Kensington, Chelsea, Mayfair, Marylebone and the City are achieving record-high rental prices. Is it sustainable and what does the future hold for London’s most sought-after rental markets?
Why the lack of rental supply?
Prime central London has the most expensive real estate in the UK, both for rent and sale. You can find yourself paying up to £1m for a one-bedroom apartment in neighbourhoods like Mayfair, and these aren’t areas where property transactions occur regularly.
For that reason, supply has always been on the lower end compared to other postcodes around London and the UK. But a combination of landlords selling up and a shift to longer-term tenancies, accompanied by people returning to the capital after the pandemic, has led to record demand and a severe shortage of available properties.
Double-digit rental growth
Prices tend to rise when there’s more demand than supply. According to property data company LonRes, rental prices in sought-after London postcodes ended the year 13.7% and 19.8% higher than the pre-pandemic average.
LonRes Managing Director Andy Payne said:
Rents are still rising rapidly in prime areas of London thanks to a shortage of homes available to rent and high demand from tenants. A shortage of stock but no shortage of renters continues to put pressure on rents, taking them to new highs. At the end of 2022, prime London rents stood more than 13% higher than they had been a year earlier.
Savills Prime Letting Index found similar results, suggesting that total rental growth in these areas is 12.5%. Tenants looking for a home in and around central London can expect to pay eye-watering high prices. The property search and data website Home currently shows average prices for a one-bedroom apartment in Kensington at £3,468 per month, while Mayfair commands £5,300.
Yet, these sky-high rental prices haven’t deterred wealthy tenants from searching for homes in the most exclusive areas of London.
How high can rents go in prime London postcodes?
Not much higher, according to Savills research analyst Jessica Tomlinson:
The ongoing imbalance between demand and supply is expected to continue driving rental growth in the short term. However, the sheer scale of rental growth over the past two years does somewhat limit the capacity for further significant increases. Over time, we expect to see the balance between supply and demand gradually restored.
Tenants looking for a rental property in central London may have to pay higher prices for a while yet. And landlords in these areas can take advantage of the fact their buy-to-lets will likely be in high demand if they come on the market.
Over time, however, the balance between the need for homes and the number available should even out. Indeed, that rapid growth is expected to slow to an average of 5% over 2023 across prime London, achieving a 13.6% growth in the five years to 2027.
Good news for London landlords?
In the short term, ‘needs-based’ tenants will probably drive up competition in prime rental areas, meaning it’s an ideal time for landlords with properties about to come on the market in London’s most exclusive neighbourhoods.
But it may be worth securing renters to longer-term contracts as the market is predicted to even itself out gradually as the year progresses.
